Hot Takes

This OCC rulemaking could a make a big difference for digital currency exchanges.

Almost two months ago the OCC issued a notice of proposed rulemaking regarding receiverships for uninsured national banks. That doesn't sound like something related to cryptocurrency but, as the comment we filed today explains, digital currency exchanges may be able to become nationally chartered institutions via a limited purpose charter from the OCC. That would mean that they would not need to get a money transmission or bitlicense in every state where they have customers. This would be a huge reduction in compliance complexity and uncertainty that may make the U.S. more comeptitive globally as a home for digital currency businesses and, by extension, technologists. In our comment we explain why digital currency exchanges may be eligable for a limited purpose charter:

Existing rules require that any entity seeking such a charter will need to perform “at least one of the three core banking functions, namely receiving deposits, paying checks, or lending money.” Digital currency exchanges do not engage in lending money and do not generally receive deposits as that activity is traditionally characterized. These companies may, however, pay checks... Though no longer accomplished with paper checks, the result is the same: a customer delivers a payment instrument to the institution, and the institution grants that person the value of the instrument in a digital form and holds it for her benefit. The digital currency exchange is paying checks in the same manner that a traditional state or nationally chartered trust can accept payment instruments and secure the value of those instruments on behalf of the beneficiary.

We explain, as we've done before, why the U.S. is less competitive globally in the digital currency sector:

The U.S. does not currently offer a particularly welcoming home for digital currency exchanges because of two troublesome structural features of U.S. financial regulation that are not present in many foreign jurisdictions: federalism, and a rules-based rather than principles-based approach.

And we describe how these businesses present no substantially different challenges in the recievership context than do existing natioanlly chartered trust companies:

...a digital currency exchange is paying checks in the same manner that a traditional state or nationally chartered trust can accept payment instruments and secure the value of those instruments on behalf of the beneficiary. Like a chartered trust company, virtual currency exchanges do not have FDIC insurance, and do not engage in the lending out or hypothecation of the assets that they hold for the benefit of their customers. These firms present a similar risk profile as chartered trust companies. Accordingly, we believe there are no unique considerations with respect to receivership presented by virtual currency exchanges, and that rules suitable for traditional trust companies should be a good fit for newly chartered virtual currency firms, should the OCC see fit to grant such a charter.

This rulemaking is a very encouraging, tangible step for the OCC to take on the road to chartering more innvovative financial companies including digital currency companies, and we're happy to participate and hopeful that the outcome will be a more competitive landscape for financial technologies in the US.

As part of our work to keep cryptocurrency networks open, decentralized, and permissionless, Coin Center tracks the introduction and current status of federal legislation that mentions, or relates to, cryptocurrencies. During the first months of the 116th Congress, we have identified 11 such bills as having been introduced in either the House of Representatives or the Senate.

As a resource to those interested in public policy and the regulation of cryptocurrencies, we have decided to make our “Crypto Bills Tracker” publicly available. We will be periodically updating it as bills are introduced and move through the legislative process, and hope it will serve as a useful resource for the cryptocurrency community.

A few months ago LabCFTC, the division of the agency dealing with innovative financial products, put out a request for information to better understand the Ethereum network and ecosystem that has developed around it. We have submitted a formal comment explaining what Ethereum is and how it works relative to other public blockchain networks like Bitcoin. Issues covered include smart contracts, consensus mechanisms (current and planned), governance, etc.

The cryptocurrency policy briefing from Coin Center.

Earlier today, Coin Center hosted a briefing in Congress in conjunction with the Congressional Blockchain Caucus. We covered the basics of cryptocurrency, why it’s exciting, and went through some the policy issues the technology raises, including questions of scaling, privacy, consumer protection, and tax.

One of the things made uniquely possible by cryptocurrency is microtransactions--tiny transactions without a middleman. To visualize this concept, we used a lightning enabled candy dispenser. We were able to show the process of sending tiny amounts of bitcoin from our phones to the vending machine and watch it dispense candy in real time. The network fees were 1 satoshi per transaction.

Real time demonstrations like these are always better than simply describing a process. We are grateful to Swiss developer David Knezić for generously donating the dispenser to Coin Center.

The well-attended briefing was the first of many that the Congressional Blockchain Caucus plans to hold in 2019. We are excited to continue helping them and their colleagues better understand and appreciate this technology.

The result of this is that many cryptocurrency businesses are choosing to simply forgo doing business with customers in New York.

We are glad to see the New York legislature taking the step of creating a task force to better evaluate the cryptocurrency landscape and its own regulatory stance toward the technology, which is well overdue. As Assemblyman Clyde Vanel noted, “It has been nearly four years since the implementation of the BitLicense. In the cryptocurrency space and technology in general, a few months is equivalent to years.”

We look forward engaging with the task force on this important mission.

A bill that would clarify securities law for tokens and improve the tax treatment of cryptocurrencies was just introduced in Congress.

Today, Reps. Warren Davidson and Darren Soto introduced the Token Taxonomy Act, which includes several common-sense changes to federal law.

First, the bill would amend the definition of “security” in the Securities Act of 1933 and the Securities Exchange Act of 1934 to exclude decentralized cryptocurrencies such as Bitcoin, thereby making clear that such cryptocurrencies are not subject to the rules and regulations of the U.S. Securities and Exchange Commission. We have longargued that classifying decentralized cryptocurrencies as securities would be both impractical and harmful to innovation, a view that the SEC has, to its great credit, also recently taken. Although the SEC has put forth sensible guidance on this question, codifying that decentralized cryptocurrencies are not securities would mitigate any lingering uncertainty.

The bill would also make several changes to the tax treatment of cryptocurrencies. One such change that we have long argued for is a de minimis exemption for cryptocurrency transactions for goods and services. Today, if you buy a cup of coffee with bitcoins and the price of bitcoin has increased since you acquired it, you would have to calculate, report, and pay taxes on any capital gains that you realized as a result of the transaction, no matter how small they might be. The Token Taxonomy Act would create an exemption from this requirement for any gains under $600, similar to the de minimis exemption that foreign currency transactions enjoy today, which we think is a simple and fair way to avoid unfairly discouraging the use of cryptocurrency as a means of payment.

We are happy to see continued action from Congress to implement common-sense clarifications and adjustments to the regulatory treatment of cryptocurrencies. We are looking forward to continued engagement with policymakers on these issues to ensure that the fruits of cryptocurrency innovation are not lost to ill-considered policy.

It is great to see cryptocurrency industry participants increasingly work together to improve their standards and build an orderly cryptocurrency ecosystem. We are looking forward to working with both organizations.

Based in Washington, D.C., Coin Center is the leading non-profit research and advocacy center focused on the public policy issues facing cryptocurrency and decentralized computing technologies like Bitcoin and Ethereum. Our mission is to build a better understanding of these technologies and to promote a regulatory climate that preserves the freedom to innovate using permissionless blockchain technologies.